German export risk has risen significantly

Dr Mario Jung, regional economist for Northern Europe Region at Coface.

About 29% of Germany’s exports to emerging economies.

There is an increased export risks facing German companies hampering growth performance. Germany’s strong trading ties with the Emerging Market and Developing Economies group (EMs), is being affected by the structural and cyclical weaknesses of these economies.

Germany’s exports to EMs has been cooling down, now weaker than demand from advanced economies,” said Dr. Mario Jung, regional economist for Northern Europe Region at Coface.

This year, Coface expects German exports to show the same trends as 2015. Growth of exports to advanced economies should be solid and robust, but export risks are much higher to EM destinations.

The global risk for Ems includes political and military conflict, terrorist attacks and structural challenges, as well as China’s weakening GDP growth. This downwards pressure could become even more pronounced, Coface said.

From a regional perspective, German export companies still remain the most optimistic on future business with advanced economies. They foresee the weakest perspectives this year in South and Central America, Eastern Europe, Russia, Turkey and China. From a sectorial perspective, some of Germany’s key industries are particularly vulnerable to risks stemming from EMs.

Coface evaluates the most significant risks in the automotive and mechanical engineering sectors and electrical equipment. Further risks from EMs are materialising in the cyclically-sensitive chemical industry.

Almost 29% of Germany’s total exports are delivered to EMs. Of these exports, more than a fifth are shipped to China, which is equal to 6% of Germany’s total cross-border deliveries. This share means that Germany is more exposed to external risks stemming from EMs than most other Euro zone countries. On average, EMs’ share of euro-area exports is around 26%.

“For export-oriented companies, the renewed fall in global oil prices is of concern, since it indicates weak global aggregate demand. Furthermore, growth prospects for many EMs remain subdued. The scenario of a ‘gradual landing’ in China will also have a negative impact on Germany’s export industries,” said Dr. Jung.

While internal demand, especially private consumption, was sluggish throughout most of the 2000s, it is currently the most important driver for growth. In contrast, net exports, which have been so important for Germany’s economic development in the past, were relatively neutral in terms of growth performance in 2015.

Net exports are likely to dampen Germany’s GDP growth this year due to weaker exports and a strong continued rise in imports. Nevertheless, due to the country’s robust internal demand, Coface forecasts German GDP growth of 1.7 % for this year.